The hedge fund industry is transforming, with managers increasingly focused on customized products and solutions, new investors, and emerging markets. This is the conclusion of “Growing Up: The new environment for Hedge Funds,” the report produced by KPMG International, the Managed Funds Association (MFA), and the Alternative Investment Management Association (AIMA). We are living in an era of unprecedented change. But it is not just the world around us that is evolving, so too is the alternative investment industry. A new environment is now emerging for hedge funds and most managers believe they will grow upwards as a result. This round of growth will be different from those in the past. Institutional investors are expected to eclipse high net worth individuals as the primary source of investment. Traditional fee arrangements will erode in the face of more customized models. And new markets will emerge both as investment destinations and as potential customers.
The report is based on global research, with more than 100 hedge fund managers representing approximately USD440 billion of assets under management. Their views reflect fundamental shifts occurring in the hedge fund industry; key findings include:
• A majority of hedge fund managers expect a significant shift in their primary sources of capital to pension funds over the next five years;
• Almost 70 percent of managers said they offer, or plan to offer, custom investment solutions;
• More than two-thirds of managers anticipate using specialized fee structures to attract investment;
• More than four in 10 managers expect to change the mix of countries where they invest, with more than a third targeting emerging and frontier markets; and
• Regulation is seen as the biggest threat to the growth of the hedge fund industry, as cited by more than three-quarters of managers